Which of the following is a 'Type 2' subsequent event (Non-recognized event)?

Answer options:

Bankruptcy of a customer who was in financial difficulty at the balance sheet date.

Settlement of litigation for an event that occurred before the balance sheet date.

A major business combination completed after the balance sheet date.

Disposal of equipment at a price below book value, where the decline in value occurred before year-end.

How to approach this question

Type 2 = New thing happened after year-end. Did not exist before.

Full Answer

C.A major business combination completed after the balance sheet date.✓ Correct

A major business combination completed after the balance sheet date.

Type 2 events provide evidence about conditions that did not exist at the date of the financial statements but arose subsequent to that date. A business combination after year-end is a classic Type 2 event requiring disclosure.

Common mistakes

Confusing customer bankruptcy (usually Type 1 because financial trouble existed) with new events.

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